Comcast Wins Sky To Create International Pay TV Platform For The OTT Era

by
David Mercer
| Sep 24, 2018

The battle for Sky is at last approaching its final phase after Comcast won the shoot-out auction on Sept 22nd. While Fox still has to consider options for its 39% stake, and other Sky shareholders have until October 11th to make a decision, one way or another it seems inevitable that Comcast will have control over most or all of the Sky business. Comcast's rationale is that Sky will instantly make it a more balanced international business, allowing it to fight Netflix and Amazon more effectively for global content rights and build a much larger customer base than could be achieved in the US alone.

While I expect the Comcast investment to allow Sky to move more quickly to establish a stronger presence across European markets, Sky must not be allowed to lose its strategic focus on delivering the best possible service to existing customers in its established markets. Continued innovation in content and user experience based on the Sky Q and NowTV platforms will be necessary in order to maintain the subscriber and ARPU levels which have made Sky such a valuable business.

I believe that both sides are strong enough and large enough to sustain their own primary technology platforms – X1 and Sky Q - over the medium term. Some observers may make a longer term financial argument for a single technology approach but this strategy would cost hundreds of millions if not billions, whether it would be X1, Sky Q or a new platform which dominated. Ultimately I believe that the financial synergies of this transaction lie in content rather than tech.

There is less opportunity for operator OTT services in the US than in Europe, given the relative regulatory and competitive environments. In my view Comcast would be crazy to make any management decision which would stifle the opportunity for NowTV or OTT Sky Q in Europe – these platforms offer the best opportunities for Sky to grow in many countries without engaging in an expensive process of buying up legacy managed operators.

Having said all this, as I wrote in a blog back in April I remain nervous about Comcast's terrible customer service record and surprised that this doesn't get more attention. Comcast and Sky are polar opposites in that respect and it would be very dangerous for shareholders if Comcast did anything to ruin Sky's market leadership in this vital area. In fact, as I read some assessments of the transaction as a “merger” rather than an “acquisition”, I would be more encouraged to know that Sky management was taking the lead in creating an international pay TV service for the OTT era, including overseeing the US operation. Time will tell whether Comcast has the courage to move in this direction.